3 Steps to Handle Market Volatility as You Approach Retirement

Posted
Friday, June 1, 2018 8:42 am

Christopher Zarra, CFP®, ChFC®, CFS®

Swings in the stock market can cause emotions to run high, particularly for investors who are approaching retirement. And for good reason. Recent research from Ameriprise Financial uncovered that the biggest financial setbacks American investors have experienced in their 50s through their 70s is market losses. Though most respondents – 62 percent – have fully recovered from these events, they’re still afraid of potential bumps down the road1.

If you share this anxiety as you approach retirement, remember that market volatility does not always mean you need to make changes to your portfolio. The following tips can help you prevent fear from getting the best of you:

1. Concentrate on your financial goals.

No one can say with certainty what will happen to stocks over the next week, month, year or decade. But what may be more certain is your financial goals for those timeframes. Ensure your portfolio is designed to help you achieve those goals, rather than to achieve a specific market outcome. Remember that timing the markets is rarely successful because there are so many unknown factors influencing how stocks move.

2. Keep your emotions in check.

Market corrections, dips and swings are inevitable for investors in the short term, so it’s important to look beyond the daily hype and headlines. Instead, watch for broad, persistent trends that could provide opportunities or challenges for your overall financial situation. As you ponder adjustments to your portfolio, remember that while you can’t control the market, you can control your reaction to it.

Two items that are more in your control are your risk tolerance and retirement date. Keep in mind that each person has an individual comfort level with taking risks. You may find that your ability to handle market swings varies over time, particularly if you’ve experienced volatility in the past or are planning your retirement. Big market moves or dips may be a good time to step back and evaluate your portfolio according to when you anticipate needing to generate income from your investments:

• If you have a decade or more before retirement, prioritize building your investments using a diversified asset mix. Investing regularly in the market could help volatility work to your benefit, as you have more time to ride out short-term turbulence and overcome potential losses. As you refine your retirement plans, calculate how much money you need to live the lifestyle you want, while also preparing for unexpected expenses such as healthcare. Knowing how much you need to retire can help you stay confident in your financial strategy amid market uncertainty.

• If you are within a few years of retirement, you likely are more sensitive to short-term market moves. At this point, you may consider gradually adjusting your portfolio to reduce your level of risk. If you wait until retirement to adjust your investment mix, you could be surprised by untimely market volatility or a downturn. If this happens, it could leave you with less money in retirement compared to your plans, forcing you to modify your goals or lifestyle. If the market is experiencing a correction, you may want to wait for it to rebound (as it historically has) before making adjustments. Making changes immediately amid volatility could lock in possible losses.

• If you are retired, be patient and maintain your diversified investment strategy. If the potential for a downturn or increased volatility makes you nervous, consider reallocating your portfolio accordingly. Keep in mind that even in retirement it may make sense to have part of your investment mix focused on growth. Today’s long life expectancies mean that you need to be prepared for the likelihood that living costs, particularly healthcare, will be higher in the later decades of your retirement.

If you have concerns about the effect of market volatility on your investments, you are not alone. If you want additional support, consider consulting a financial advisor who can review the details of your unique financial situation. Together you can determine if your portfolio is on track to reach your goals.

1 – The Ages, Stages & Money study was created by Ameriprise Financial, Inc. and conducted online by Artemis Strategy Group December 8-21, 2017 among 3,019 U.S. adults between the ages of 30-79 with at least $100,000 in investable assets. For further information and details about the study, including verification of data that may not be published as part of this report, please contact Ameriprise Financial or go to Ameriprise.com/ages.